Economic growth is closely linked to energy consumption, and India’s demand for oil and gas (O&G) has risen steadily in tandem with growth. Unfortunately, India has to meet around 88 per cent of crude demand and 50 per cent of gas demand through imports. Despite efforts to increase domestic production, this high import dependency will continue for the foreseeable future. Policymakers have to take this into account.
There are several positive trends in the O&G sector. India has surplus refining capacity and efficient refineries generating excess gross refining margins. Hence, it exports a substantial volume of petroleum products.
The city gas distribution network has expanded rapidly, and the policy target of pushing gas to cover 15 per cent of the fuel mix by 2030 from the current 6-7 per cent seems achievable. The steady induction of technology across the O&G value chain is improving efficiencies across every link of the chain, from exploration to retail marketing. Acreage under exploration is set to increase considerably. Hopefully, this will result in more discoveries. Pipeline and terminal infrastructure is also improving.
There have been a few significant discoveries and developments, such as the January 2024 discovery by ONGC in the KG basin, which is expected to substantially increase domestic gas production. This reserve is estimated to hold over 100 million barrels of oil equivalent. Cairn Oil and Gas has plans to double production capacity by developing the Jaya oil and gas discovery in its onshore Open Acreage Licensing Policy (OALP) block in Bharuch district, Gujarat. This is the first field development plan submitted under the OALP regime, wherein 144 blocks have been awarded under eight OALP rounds.
However, the sector also suffers from longstanding issues. Pipeline connectivity is still deficient. Tariff controls of various kinds make it hard for companies to generate predictable margins, given fluctuations in gas and crude market prices. A “windfall tax“ also puts a ceiling on profits for oil and gas producers. The absence of uniform taxation (states levy different rates of value added tax) is a further complication since natural gas, crude and petroleum products are outside the purview of GST. The separation of pipeline ownership and marketing, and the slow pace of project approvals are other hindrances. The growing penetration of electric vehicles could also reduce demand from the auto sector.
The policy allows 100 per cent foreign direct investment (FDI) under the automatic route in exploration and production (E&P). But while FDI and participation from global oil majors is essential, most overseas outfits are hesitant, since India has comparatively poor prospecting data.
The sector has received investments in many types of technologies, from GIS to SCADA, ERP and smart meters. Every player from upstream to retail has invested in technology, and the process continues. E&P companies are increasingly leveraging advanced seismic imaging, horizontal drilling and hydraulic fracturing to explore and develop unconventional resources. International collaborations are also being sought. In June 2024, ONGC floated a tender for western offshore O&G fields, to select an international technology partner.
The E&P sector has seen a policy thrust to expand exploration acreage to 1 million square km by 2030. The National Data Repository (NDR) is being upgraded, with plans for a cloud-based NDR powered by artificial intelligence. Downstream, in gas, the 12th CGD bidding round is expected to attract Rs 410 billion in investments. PNGRB is also trying to pull in more expertise to better determine tariffs for pipelines and CGD networks, and to review the operations of gas exchanges.
The geopolitical energy environment is inherently volatile, and India is also in the middle of an ambitious energy transition, targeting net-zero carbon by 2070. The activity across the sector bodes well, but policymakers need to plug known gaps and address acknowledged weaknesses to increase momentum.